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AP Microeconomics

Subjects : economics, ap
Instructions:
  • Answer 50 questions in 15 minutes.
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  • Match each statement with the correct term.
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This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. The upward part of the LRAC curve where LRAC rises as plant size increases. This is usually the result of the increased difficulty of managing larger firms - which results in lost efficiency and rising per unit costs.






2. Pmc < MR = MC and Pmc > minimum ATC so outcome is not efficient - but profit = 0.






3. Occurs when an economy's production possibilities increase. This can be a result of more resources - better resources - or improvements in technology.






4. Consumer income - prices of substitute and complementary goods - consumer tastes and preferences - consumer speculation - and number of buyers in the market all influence demand






5. Labor demand for the firm is MRPL curve. The labor demanded for the entire market DL = ?MRPL of all firms






6. Exists when the production of a good imposes disutility upon third parties not directly involved in the consumption or production of the good






7. The difference between the price received and the marginal cost of producing the good. It is the area above the supply curve and under the price






8. Production inputs that cannot be changed in the short run. Usually this is the plant size or capital






9. A legal maximum price above which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent shortage






10. Additional benefits to society not captured by the market demand curve from the production of a good - result in a price that is too high and a market quantity that is too low. Resources are underallocated to the production of this good






11. Indirect - non-purchased - or opportunity costs of resources provided by the entrepreneur






12. The mechanism for combining production resources - with existing technology - into finished goods and services






13. AVC = TVC/Q






14. The marginal utility from consumption of more and more of that item falls over time






15. TR = P * Qd






16. A legal minimum price below which the product cannot be sold. If a floor is installed at some level above the equilibrium price - it creates a permanent surplus






17. Costs of inputs - technology and productivity - taxes/subsidies - producer speculation - price of other goods that could be produced - and number of sellers all influence supply






18. Excess supply; exists at a market price when the quantity supplied exceeds the quantity demanded.






19. A period of time long enough to alter the plant size. New firms can enter the industry and existing firms can liquidate and exit






20. Production of the combination of goods and services that provides the most net benefit to society. The optimal quantity of a good is achieved when the MB = MC of the next unit and only occurs at one point on the PPF






21. Total product divided by labor employed. APL = TPL/L






22. Production inputs that the firm can adjust in the short run to meet changes in demand for their output. Often this is labor and/or raw materials






23. Ed > 1 - meaning consumers are price sensitive






24. Costs that change with the level of output. If output is zero - so are TVCs.






25. The difference between the monopolistic competition output Qmc and the output at minimum ATC. Excess capacity is underused plant and equipment






26. Exists when the production of a good creates utility for third parties not directly involved in the consumption of production of the good






27. Ei > 1






28. The philosophy that a citizen should receive a share of economic resources proportional to the marginal revenue product of his or her productivity






29. Demand for a resource like labor is derived from the demand for the goods produced by the resource






30. The number of units of any other good Y that must be sacrificed to acquire good X. Only relative prices matter






31. Entry (or exit) of firms does not shift the cost curves of firms in the industry






32. A market structure characterized by a few small firms producing a differentiated product with easy entry into the market






33. The sum of consumer surplus and producer surplus






34. MUx / Px = MUy/Py or MUx/MUy = Px/Py






35. The least competitive market structure - characterized by a single producer - with no close substitutes - barriers to entry - and price making power






36. The rational decision maker chooses an action if MB = MC






37. A measure of industry market power. Sum the market share of the four largest firms and a ratio above 40% is a good indicator of oligopoly






38. When firms focus their resources on production of goods for which they have comparative advantage






39. The change in quantity demanded resulting from a change in the price of one good relative to other goods






40. The most desirable alternative given up as the result of a decision






41. The output where AVC is minimized. If the price falls below this point - the firm chooses to shut down or produce zero units in the short run






42. The additional cost incurred from the consumption of the next unit of a good or a service






43. For one good - constrained by prices and income - a consumer stops consuming a good when the price paid for the next unit is equal to the marginal benefit received






44. Holding all else equal - when the price of a good rises - consumers decrease their quantity demanded for that good






45. Ed = 0 - no response to price change






46. Total revenue rises with a price increase if demand is price inelastic and falls with a price increase if demand is price elastic






47. The output where ATC is minimized and economic profit is zero






48. The change in total product resulting from a change in the labor input. MPL = dTPL/dL - or the slope of total product






49. The case where economies of scale are so extensive that it is less costly for one firm to supply the entire range of demand






50. The firm hires the profit maximizing amount of a resource at the point where MRP = MRC